Compliance Essentials for Overseas Investments under LRS

Context:

With increasing retail participation in U.S. equities by Indian residents, regulatory and tax compliance under the Liberalised Remittance Scheme (LRS) and the Black Money Act has gained renewed attention.

Liberalised Remittance Scheme (LRS):

Introduced on 4 February 2004 with an initial remittance limit of USD 25,000, later revised in stages.
Current limit: USD 2,50,000 per financial year for permissible transactions including foreign equity investments.
TCS applies if annual foreign remittance exceeds ?10 lakh, with rate depending on purpose of remittance.

Taxation of Foreign Investment Income:

Dividend Income: Subject to 25% withholding tax in the U.S., balance taxable in India per slab rates. Foreign Tax Credit (FTC) available under India-U.S. DTAA via Form 67.
Capital Gains: No U.S. tax for Indian NRAs; in India, gains taxed as LTCG at 20% (with indexation) if held >24 months, otherwise STCG taxed per slab.

Disclosure & Penalties:

Mandatory reporting of all foreign assets, irrespective of value, under Schedule FA of ITR.
Non-disclosure attracts penalty of ?10 lakh/year under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and may lead to imprisonment up to 7 years.
Voluntary disclosure possible via revised return or ITR-U under Section 139(8A).